Essential Insurance Coverage for Car Dealerships

Operating a car dealership comes with substantial assets and significant risks. Between your vehicle inventory, facilities, employees, and customers, you need comprehensive insurance to protect your business. But with so many options, what policies are non-negotiable?

In this guide, we’ll outline the key types of insurance coverage every car dealership requires to safeguard their business from unforeseen liability, property damage, and loss scenarios

Why Insurance Matters for Auto Dealers

New and used car dealerships have expansive operations filled with vulnerabilities. Consider that you likely have:

• An expensive inventory of vehicles vulnerable to theft and natural disasters.

• Customer test drives that heighten your auto liability exposures

• A service center responsible for maintaining customer vehicles.

• Business facilities subject to property risks like fires, leaks, and bursts.

• Numerous employees that could spark employment-related lawsuits.

• Extensive customer personal and financial data needing cyber protection

Without proper insurance, one mishap could lead to substantial repair bills, legal fees, fines, and disruptions that threaten your dealership’s financial stability. The right insurance provides a safety net to keep your business running smoothly when the unexpected occurs.

Key Car Dealership Insurance Policies

While insurance needs vary by location and operations, these are the core policies that virtually every car dealership requires:

Commercial Property Insurance

This covers your physical business facilities, equipment, furniture, and inventory in the event of damage. For a dealership, your vehicle stock is especially crucial to insure against catastrophic risks. Ensure your policy has sufficient limits to replace your entire inventory following a major loss.

Garage Liability Insurance

Going beyond general liability insurance, garage liability protects against bodily injury and property damage claims stemming from your service center and sales operations. This handles incidents like a customer injury during a test drive or accidental damage to a vehicle in for repairs. Products liability is also included to cover damage from an actual problem with a vehicle you sold.

Garagekeepers Insurance

Since customers leave their vehicles in your care, garagekeepers (or garagekeepers legal liability) insurance is critical. It pays for damage to customer vehicles that occurs while at your dealership for services, storage, or parking. Make sure your policy has adequate bailee limits.

Dealers Open Lot Coverage

For dealerships, open lot coverage extends your garage policy to insure your on-site vehicle inventory against risks like hail, floods, theft, vandalism, and accidents. This protects your expansive ongoing investment in new and used car stock.

Commercial Auto Insurance

This essential policy covers your business vehicles from damage collisions and covers injuries/damage your drivers cause to others. Make sure your policy has broad coverage to include customer test drives. Non-owned auto coverage is also key to protect your business when employees use personal cars for work purposes.

Workers’ Compensation Insurance

Nearly every state requires you to carry workers’ compensation insurance to cover injuries, medical care, lost wages, rehabilitation services, and death benefits for employees who suffer job-related illnesses or injuries. Fines for non-compliance are steep, making this legally mandated coverage a must.

Umbrella Liability Insurance

For an added layer of protection from large claims and lawsuits, umbrella liability insurance increases your coverage limits for general liability, auto liability, and employer’s liability. Given your heighted exposures, higher umbrella limits are wise for a dealership.

Essential Supplemental Car Dealership Insurance

On top of the primary policies listed above, the following supplemental insurance options are highly recommended:

• Employment practices liability insurance (EPLI) – Protects against employment lawsuits around issues like wrongful termination, discrimination, harassment, retaliation and more.

• Cyber liability insurance – Safeguards you following data breaches, hacks, and malware attacks given the wealth of customer financial data you handle.

• Errors and omissions (E&O) insurance – Handles liability exposures from potential mistakes, misstatements, inaccurate information, or negligent actions that cause financial harm to customers.

• Flood Insurance – Since standard property insurance excludes flood damage, this addon policy is vital for dealerships vulnerable to flooding.

• Business interruption insurance – Covers income losses and operating expenses when your business experiences covered property damage or losses.

Factors That Impact Car Dealership Insurance Costs

Your insurance premiums will depend on factors like:

• Location and susceptibility to risks like floods or hail

• Age and claims history of your dealership

• Value of your facilities, inventory, and equipment

• Type of vehicles you sell – exotics cost more to insure

• Whether you sell new vehicles, used vehicles, or both

• Whether you provide repair services

• Number of test drives provided

• Number of employees

• Amount of customer data you collect and store

• Selected policy limits and deductibles

Making smart choices around risk management, coverage limits, and deductibles helps minimize insurance costs. An expert agent can guide you in structuring policies in the optimal way to stabilize premiums while still getting adequate protection.

Key Takeaways on Insurance for Car Dealerships

• Car dealerships require specialized insurance policies that account for vulnerabilities like expensive inventory, customer test drives, repairs services, facilities risks, employees, and substantial customer data.

• Core car dealership insurance includes commercial property, garage liability, garagekeepers, open lot, commercial auto, workers’ compensation, and umbrella liability coverage.

• Supplemental policies like employment practices liability, cyber liability, errors and omissions, flood, and business interruption insurance provide important additional protection.

• Factors like your inventory value, location, operations, number of employees, and policy structure impact the cost of your dealership’s insurance coverage.

• An expert agent can help car dealerships analyze risks, navigate insurance options, and structure optimal policies tailored to their unique operations and budget.

Protecting your substantial assets and complex business takes the right insurance approach. By understanding the key policies car dealerships need and aligning coverage with your specific operations, you can secure complete protection that lets you operate with confidence.